Friday, July 4, 2025
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Is the world hitting the brakes?

Andre Botha (Senior Dealer at TreasuryONE) and George Glynos (Head of Research at ETM Analytics) discuss the probability of a recession in 2023.

Inflation has become a global problem, and in an effort to combat it, we have seen Central Banks hiking interest rates. The question becomes, what is the cost of the hiking cycle? From what we can establish, the Central Banks are hiking into a low-growth scenario which has greatly increased the chances of a recession.

Below are some prominent charts that emphasise the point.

To start with, over the past 50 years, no oil price shock has occurred without a recession in oil-exposed developed economies.

Global leading indicators are turning lower, raising the recession flag. Five times out of eight that the leading indicator has fallen to this levels, worldwide recessions have followed. As central banks continue to raise rates, quantitative tightening has only begun, the full consequences of monetary tightening have not yet materialized, and inflation remains high and detracts from disposable incomes, we anticipate a further decline in the leading indicator.

The cost-of-living crisis, especially in the Eurozone, has become extreme. There is no escaping the slowdown that is coming. You can either hike rates to curtail inflation – which will slow growth – or inflation will do it for you. As a result of Europe’s reluctance to raise rates, inflation has become a greater concern. As a result, household disposable income is plummeting, which will have a significant negative impact on consumer spending.

Europe’s biggest economy is under considerable pressure and the demand for durable goods relative to non-durables is well below zero, signaling a constraint on expenditure and consumption on bigger ticket items. Historically, such levels have indicated a recession.

Liquidity is actively being drained from the global economy at a rate not seen since the data started getting captured in 2007. This will have a huge impact on consumption, bank lending, economic growth, and the financial markets.

The US yield curve is the most inverted it has been since the 1980s, making it one of the greatest historical indicators of a recession. The Fed believes it can engineer a soft landing. The question to ask is whether the Fed will get it right. The smart money is that they won’t because the global coordination of hikes and inflation makes this time different.

Global PMI readings have all fallen and are looking to dip into contraction territory. Over the weekend, the IMF warned that this would further detract from global GDP growth and that their expectation for global growth in 2023 could be revised down from the 2.7% they had predicted in their previous forecast.

Inflation episodes tend to usher in recessions and this has been the most extreme bout of inflation in many decades.

From the above, we believe that there is a very strong case to be made that a recession is in most likelihood on our doorstep and could be the story of 2023. The warning signs are flickering and there is enough evidence there that a significant slowdown is approaching. 

For more information on how TreasuryONE can help you manage market risk alongside other services, visit the website.

The UK: land of austerity

The fiscal strategies employed during the pandemic are coming back to haunt some of the world’s most powerful economies. As Chris Gilmour explores, the UK is in for a tough time.

When the Sars-CoV-2 virus struck the western world outside of China about 2.5 years ago, most countries reacted by taking on massive amounts of new debt and applying stimulus measures in order to prevent their economies from stalling.

At the time, I cautioned that these measures would have to be paid for in one way or another once the pandemic had ended and whether that was via massive tax increases or other austerity measures didn’t really make much difference. With the arrival of the Omicron variant of the virus last November, the pandemic has all but disappeared in most western countries, even though it is still alive and kicking in China. Most restrictions have now been lifted, particularly those relating to international travel and life is largely getting back to normal in most countries.

Economic payback

But this is where it gets “interesting”…

The UK had its first real taste of coronavirus payback time last week, when the new chancellor of the exchequer, Jeremy Hunt, unveiled his autumn statement, which is akin to South Africa’s medium-term budget policy statement. In many ways, this can be seen as a worst-case scenario template for many other countries that will probably have to indulge in similar, though perhaps not quite as extreme measures in the not too distant future.

In part, Hunt’s mini-budget was designed to provide clarity on government spending in the wake of the disastrous measures announced by his predecessor, Kwasi Kwarteng, in late September. Kwarteng had attempted, in true libertarian fashion, to spend his way out of the problem with unfunded tax cuts. To add insult to injury, Kwarteng completely ignored the Office for Budget Responsibility (OBR) which was designed in 2010 to help prevent treasury officials doing their own thing regardless of the financial outcome.

In this case, the international bond markets brought Kwarteng’s excesses to heel by trashing the value of UK pensions and in so doing, dropping the external value of sterling to near-parity with the US dollar.

Jeremy Hunt is no rocket scientist; unlike Kwarteng, he doesn’t hold a PhD in economics, but he is regarded as being a safe pair of hands. Last week he had the unenviable task of applying austerity measures to an already crippled economy in the hope that some kind of light will emerge before the next general election in late 2024. And at least this time he has the buy-in of the OBR, which assisted greatly with forecasts.

Unfortunately, it makes for dismal reading, as the next few charts from the OBR illustrate.

It’s going to be ugly

Alone among the major European economies, Britain’s GDP is still trailing its pre-pandemic levels and it looks like it won’t exceed them until 2025 at the earliest. On a per capita basis, the outlook is even more sobering:

Real household disposable income per person

But that’s not all. The Bank of England’s pessimistic GDP outlook of a few months ago, even before the Truss/Kwarteng circus got into full swing, suggested a 5-quarter recession, lasting until well into 2023.

The OBR now forecasts something that is perhaps slightly shallower than that but nevertheless still prolonged:

Real GDP

The only metric that looks even remotely optimistic is the one that relates to the root causes of inflation in the UK. Inflation is seen peaking in 2023, coming off sharply in 2024 and actually going negative in 2025/26:

Interestingly, this type of pattern is also reflected in US used-car sales as proxied by the Manheim Used Car Index. The used car market in America was one of the sectors that was right at the forefront of the great inflation a year or so ago. Now it has collapsed, as shown in the graphic below:

Source: www.manheim.com, Gilmour Research

One couldn’t help feeling a tinge of sympathy for Hunt as he delivered his statement last week. It must be especially frustrating, nay infuriating to have to effectively “beg” 600 000 people on universal credit to consider coming back to the workplace in order to get some stability back into lower-level employment. These austerity measures may help to concentrate minds in this regard.

He’s done his homework and the Brits are about to endure a real “winter of discontent” and one can only hope that his measures are enough to transform the winter of discontent into a glorious summer, as per Shakespeare’s famous soliloquy.

There will be no second chances.

The global economy is fraught with as many moving parts and potential traps as I have ever seen. To be sure, gas prices should begin crumbling in line with Russia’s progressively strangled economy. But who can possibly read the mind of a dictator such as Vladimir Putin?

In the immortal Afrikaans words: “Vasbyt ou maat, vasbyt.”

This article reflects the independent views and opinions of Chris Gilmour, which are not necessarily the same as The Finance Ghost’s opinions on these stocks. For equity research on South African retail and other stocks, go to www.gilmour-research.co.za.

Ghost Bites (BHP | Gemfields | Murray & Roberts | Novus | Southern Sun)

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BHP gets the OZ Minerals board across the line

The revised proposal has done the trick

OZ Minerals is an Australian mining and exploration company with copper-gold and copper-nickel mines and projects. It also operates a copper-gold hub in Brazil. BHP has its eye on the copper and nickel as commodities that are important in the global megatrends of decarbonisation and electrification. It also helps that OZ’s operations in South Australia are fairly close to existing operations of BHP.

BHP’s original offer for 100% of the company was A$25 per share and the board of OZ said thank you, but no thank you. With a revised offer of $28.25 per share (13% higher), the board has agreed to unanimously recommend the proposal to shareholders. This is a 59.8% premium to the 30-day VWAP before the original deal price was announced to the market.

The next step is for BHP to perform a confirmatory due diligence, a process that is expected to take four weeks. If that goes to plan, the parties will then conclude a binding scheme implementation agreement.


Gemfields may make you green with envy

The latest emerald auction included a 37kg showstopper called the Kafubu Cluster

Recent updates on Gemfields have been focusing on the terrorist activity in Mozambique and the risks for the ruby mine in that region. Thankfully, Gemfields also owns a very successful emerald mine in Zambia called Kagem (75% owned by Gemfields and 25% by the Zambian government).

In the latest emerald auction, 34 of the 37 lots were sold and auction revenues were $30.8 million. The Kafubu Cluster was 44% of the total weight at this auction.

This auction caps off a record year of revenue for Kagem, coming in at $149.4 million and way ahead of the previous record of $92.3 million set in 2021.

With relatively low liquidity in the stock and all the volatility around Mozambique, it’s been a fairly chaotic year for the share price:


Murray & Roberts gives full details of the Clough deal

It’s time to close this chapter and refocus the group

After releasing a cautionary announcement earlier this month, Murray & Roberts has released a Category 1 announcement for the disposal. This is the largest type of deal under JSE rules – one that requires shareholder approval before it can be implemented.

The asset on the chopping block is Australian engineering and construction company Clough. The buyer is Webuild, an Italian construction firm with a global footprint. Webuild has worked with Clough before on various projects.

Although the deal value is AUD350 million (around R4 billion), most of that value will be discharged through writing off an intercompany loan. Murray & Roberts will only receive a cash payment of A$500,000 (around R5.75 million).

To keep the lights on at Clough until the deal closes, Webuild has committed to put in an interim loan facility of A$30 million. Before Clough can access this loan, the Italians want more certainty that the deal is going to happen. For this reason, Murray & Roberts wants to obtain shareholder undertakings by holders of more than 50% in the company by the end of November. This is different to the formal shareholder vote which needs to follow the standard JSE timeline. The undertakings are purely to give comfort to Webuild.

All the trouble at Clough comes from fixed-price contracts that were hit by Covid, giving rise to claims on projects and delays in receipt of milestone payments. When construction goes wrong, it goes badly wrong. Clough’s profit for the year ended June of R307 million has swung to a huge loss of R1.18 billion because of the contractual issues. The net asset value of Clough is R4.2 billion, of which R3.9 billion relates to the intercompany loan. This means that the purchase price is still below the net asset value by a few hundred million rand.

Assuming this deal goes ahead, Murray & Roberts will have residual exposure in Australia through RUC Cementation, part of the company’s Mining platform and unrelated to Clough.

A circular will be distributed to shareholders in due course.


Novus looks ahead to a future in education

The Pearson acquisition will give Novus a new platform for further investment

Currently, Novus is a printing and packaging business. In the six months ended September, the Print segment was hit by very high input costs (pulp and paper) and supply chain challenges. The Packaging segment had a much happier time with ITB Flexible Packaging Solutions showing revenue growth and Novus Labels returning to profitability.

At group level, revenue fell by 3%, the gross profit margin deteriorated from 24% to 16.9% and operating profit fell by a particularly nasty 74% to R23.3 million. It really was a tough period for the business with many external factors that hurt the numbers.

In Print, revenue fell by 5.5% and the business slipped into the red, with an operating loss of R7.8 million vs. operating profit of R76 million in the prior period. Gross margin collapsed from 26.8% to 16.9%. Although global pressures like pulp prices tend to normalise, the bigger issue is that this is a sunset industry. Print volumes were down 14.5%, driven by significant declines in demand by magazines and newspapers. Some of that demand has been lost to competitors who were willing to price more aggressively.

In Packaging, revenue increased by 7% and gross margin improved from 12.7% to 16.3%. Operating profit of R29.1 million is nearly double the R15 million achieved in the prior period.

The group is trying to improve its profitability through various cost-saving measures. General overheads decreased by 17.8% in this period. There are also various once-off costs in this period related to retrenchments and the Pearson acquisition.

Working capital has come under significant pressure from the supply chain issues and this issue isn’t going away, with Novus deciding to increase its paper stock volumes above historical seasonal levels.

When the SENS announcement gives lots of fluffy wording in the working capital section and not enough numbers, you know you need to go digging. Take a look at the stark difference in inventory balances:

The first half of the year generally isn’t great for cash generation at Novus, as demonstrated by the Statement of Cash Flows which shows the cash flow pressure in the interim period that usually reverses in the full year numbers:

Looking ahead, the Pearson acquisition is going to be transformative for the group. With an effective date of 30 November, the Pearson numbers will be in the full year result. The outlook section of the announcement makes the intentions clear:


Southern Sun bounces back after the pandemic

With detailed results due soon, a trading update gives us a peek at the performance

For the six months ended September, Southern Sun’s revenue has considerably more than doubled vs. the comparable period. This is the case even if you exclude the once-off payment of R399 million received from Tsogo Sun Gaming.

EBITDAR (an important operating profit metric for hotel groups) increased from R145 million to between R454 million and R482 million.

By the time we reach adjusted headline earnings per share (HEPS) level (excluding the payment from Tsogo), we see a swing from a loss per share of 11 cents to a profit per share of between 0.9 cents and 2.7 cents. Although the group is profitable, the damage caused by the pandemic is still visible.

For reference, adjusted HEPS for the six months ended September 2019 was 6.9 cents.


Little Bites:

  • I’m no expert on matters of law, but it appears as though Trustco has run out of ways to fight its listing suspension. The Financial Services Tribunal has delivered its ruling in the Suspension Reconsideration Application, in which it dismissed Trustco’s application and ordered the company to pay half of the JSE’s costs. Trustco needs to get its accounting in line with the JSE’s requirements.
  • Afine Investments released results for the six months ended August. This is a specialised REIT that has a portfolio of fuel forecourts. Revenue is only 0.25% higher and HEPS has dropped by over 19%. The net asset value per share increased by 46% to R3.62. A dividend per share of 19.3 cents has been declared and the share price is R4.35.

Ghost Wrap #2 (Premier listing | Tiger Brands | Purple Group | eMedia | Vodacom | Transaction Capital | Spar | Woolworths | Shoprite)

Welcome to Ghost Wrap. It’s fast. It’s fun. It’s informative.

Ghost Wrap is your weekly summary of the most interesting and important stories on the JSE. This week, we cover:

  • Brait’s offering of up to R3.7 billion worth of shares in Premier, with Christo Wiese giving strong support to that listing
  • A strong second half performance of Tiger Brands – a company where I got it wrong
  • Purple Group’s results and the need to look deeper to really understand them
  • The impact of load shedding on media company eMedia and telecoms giant Vodacom
  • The portfolio effect within Transaction Capital, with WeBuyCars far outperforming SA Taxi in the past year for various reasons – but what will the future hold?
  • Trading updates and results from Spar, Woolworths and Shoprite – a mixed basket of note

The Ghost Wrap podcast is proudly brought to you by Mazars, a leading international audit, tax and advisory firm with a national footprint within South Africa. Visit the Mazars website for more information.

Listen to the podcast below:

Ghost Bites (Harmony Gold | Investec | Life Healthcare | Netcare | NEPI Rockcastle)

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Harmony Gold’s metrics are under some pressure

Production is lower and costs per kilogram have increased

Harmony released an operational update for the three months ended September. The good news is that free cash flow grew by 17% and the cash flow margin improved to 8% from 7%.

The cash outcome is somewhat surprising, as other metrics don’t look great. Production fell by 4% due to the closure of Bambanani. In the international segment, production fell by 28% with lower production at Hidden Valley as expected.

Group all-in sustaining costs increased by 5% to R907,864/kg because of the decrease in production. With the gold price only up by 1% in rand terms, that’s not ideal.

Net debt to EBITDA increased from 0.1x to 0.26x due to currency translation and working capital movements.

The company believes that it remains on track to meet the FY23 guidance.

Looking ahead, the company believes that its further investment in copper will bring lower-risk, near-term copper into the portfolio, achieving more diversification in the operations.


Investec signs off on a great period for earnings growth

Adjusted earnings per share growth of 25.1% is at the top end of guidance

Investec is a rather complicated animal. There are wealth management and lending businesses and the footprint isn’t just in South Africa, as Investec is active in the UK market as well.

Funds under management fell by 7.6%, a function of the drop in global markets this year. Importantly, net client inflows were strong at £202 million.

In the lending business, net core loans grew 7.1%, driven by corporate lending in SA and the UK as well as UK residential mortgage lending.

Moving to the income statement, revenue grew 18.9% and the cost to income ratio improved from 64% to 60.5%, with the net impact on pre-provision adjusted operating profit being growth of 29.5%. The contribution from both geographies was strong.

Although the credit loss ratio has increased from 7 basis points to 15 basis points, Investec believes that asset quality remains strong.

Return on equity has increased from 11.2% to 13.0%.

At net asset value level, the strong performance was offset by the unbundling of a 15% stake in Ninety One to shareholders. Tangible net asset value per share is flat year on year.

The interim dividend of 13.5 pence per share is 22.7% higher and reflects a 41% payout ratio.


Life Healthcare’s recovery in SA couldn’t offset the UK drop

Although earnings are slightly down, there’s a substantial increase in the dividend

For the year ended September 2022, Life Healthcare enjoyed a better second half after a slow start to the year.

It’s not intuitive, but Covid was a very bad time for hospital groups. Although the beds were filled with Covid patients, they weren’t filled with people recovering from elective surgeries and that’s where the money gets made.

Things are far more “normal” now, with 15.8% growth in acute hospital admissions, 14.8% growth in theatre minutes and 13.8% growth in mental health admissions. The latter statistic is something that I always find upsetting, as that’s the true legacy of the pandemic.

Revenue growth of 6% was enough to drive normalised EBITDA growth of 18.3%, a perfect example of operating leverage. Hospitals have substantial fixed costs, which means the good times are really good and the bad times are horrible.

Life is expanding in the radiology side of the business, with two acquisitions that became effective this year (one in February and one in August). They contributed R94 million to revenue (vs. R28.2 billion group revenue) and the full year impact will only be seen next year.

In the UK, Alliance Medical Group delivered 2.8% revenue growth. Due to Covid-related contracts falling away, normalised EBITDA dropped by 11.9%. Life’s business is interesting in that one part of the business suffered during Covid and the other benefitted.

Net debt to EBITDA of 1.89x is far below bank covenant levels of 3.5x. The group’s inaugural bond programme raised R1 billion during the year and was 4.5 times oversubscribed, which means the market really likes Life’s debt!

The net result of the good news in SA and the drop in the UK is a 4.5% decrease in headline earnings per share (HEPS). With far more certainty on market conditions, the dividend was increased by 60% to 40 cents per share, a pay-out ratio of 37.7%.


Netcare’s earnings are higher

For now, all we have is a trading statement

In a day of news for hospital groups, Netcare added its voice to the recovery party with an expected increase in HEPS for the year ended September of between 20% and 20.7%.

The company also released an adjusted HEPS number that excludes other elements that management believes are not useful for investors to consider. Adjusted HEPS will increase by between 23.1% and 23.9%.

Full results are expected to be released next week Monday.


NEPI Rockcastle revises earnings guidance higher

There is strong momentum in tenant sales

NEPI Rockcastle has had a busy year. The corporate headquarters were relocated to Netherlands, which means the company is now domiciled within the EU. When combined with the fairly modest leverage on the balance sheet (loan-to-value ratio of 31%), this gives NEPI Rockcastle an attractive corporate structure.

Operationally, tenant sales are showing positive cadence, which is a fancy way of saying that sales have accelerated over the course of the year. Fashion retailers are running well ahead of pre-Covid levels and entertainment tenants still haven’t closed the gap to 2019 numbers.

Interestingly, footfall for the first nine months of the year is 19% higher than the previous year and 12.4% lower than the same period in 2019.

Net operating income is 18% higher year-on-year, driven by the decrease in Covid-related discounts.

Guidance for the full year is growth in distributable earnings per share of 38%. This is up from the previous guidance of 33%. Naturally, this assumes that there won’t be an escalation in the war in Ukraine that affects neighbouring countries.


Little Bites:

  • Director dealings:
    • Directors of Gold Fields have taken advantage of the recent share price jump. Across several directors, shares sold were worth over R25 million and shares retained were worth R10 million.
    • A director of Discovery has sold shares in the company worth R7.4 million.
    • A significant number of directors of operating subsidiaries of Sasol elected to retain at least a portion of shares that vested under an incentive scheme.
    • An associate of a director of Afrimat sold shares in the company worth just over R5 million.
    • The CEO of Altron is still buying shares in the company, this time worth R161k.
    • The most predictable transaction on the JSE at the moment is Des de Beer buying shares in Lighthouse Properties, this time worth R1.69 million.
  • It’s been a long wait, but the Competition Tribunal has finally approved the merger between Impala Platinum and Royal Bafokeng Platinum. With Northam Platinum having made an offer at a higher price for Royal Bafokeng, this regulator approval gives Impala Platinum the confidence to potentially raise the offer price. I still have my suspicions that we will see a bidding war here.
  • Sirius Real Estate released a trading statement for the six months ended September. The dividend is expected to be between 2.683 euro cents and 2.713 euro cents per share, an increase of between 32% and 33% vs. the prior year.
  • Grindrod Shipping released results for the nine months ended September. As the company is currently under offer, there’s no intention to declare any further dividends this year. Earnings for the third quarter were lower than in the second quarter as shipping rates declined over the period. A reduction in shipping costs is a major driver of lower global inflation.
  • Novus has announced that the acquisition of a 75% stake in Pearson SA has been approved by the Competition Commission. The deal is thus unconditional and the effective date is 30 November.
  • Afine Investments released a trading statement for the year ended February 2022 that reflects a decrease of 19.1% in HEPS.

Who’s doing what this week in the South African M&A space?

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Exchange Listed Companies

NEPI Rockcastle has entered into a binding agreement to acquire the Atrium Copernicus Shopping Centre in Poland from Atrium Retail. The transaction, for €127 million, includes the adjacent development property. The deal will be funded from existing cash resources.

Delta Property Fund has disposed of its property situated at 96 First Avenue in Greyville, Durban commonly known as Standard Bank Greyville for a cash consideration of R44 million.

Impala Platinum has advised Royal Bafokeng Platinum shareholders that it has extended the closing date of the offer to at least 15 December 2022 and the long stop date to 30 December 2022.

Unlisted Companies

Condra, a local leader in crane and hoist manufacture, has acquired iTek Drives, a distributor of the Optidrive range of variable frequency drives. The acquisition secures for Conddra the supply of a key crane component and reinforces iTek’s position as an important sales partner of Invertek Drives, a UK-based manufacturer of the Optidrive product range.

Technology consulting firm BSG has announced the investment in the company by Mteto Nyati. The former Altron CEO who has taken a 40% stake for an undisclosed sum will become the business’ new executive chairman.

Local healthcare startup Contro, has secured R10,1 million in an oversubscribed pre-seed funding round. Investors included Plug & Play, iCubed Capital, WZ Capital and the Jozi Angels Network. In addition, the telehealth startup received grant funding from i3 fund which is backed by the Bill & Melinda Gates Foundation. The funds will be used to further develop its platform and expand its services.

DealMakers is SA’s M&A publication
www.dealmakerssouthafrica.com

Who’s doing what in the African M&A space?

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DealMakers AFRICA

Power Brands, the parent company of Céréalis a Tunisian producer of salted snacks and baked goods, has received a significant investment from Admaius Capital Partners. The undisclosed investment made via its Virunga Africa Fund 1, will be used to scale the branded FMCG platform through the combination of organic growth and selective acquisitions.

Helios Investment Partners has entered into an agreement to acquire a majority stake in Maroc Datacenter, a carrier neutral data centre in Morocco.

Pearl Capital Partners has invested in Kampala-based agro-processing company Newman Foods via its Yield Uganda Investment Fund. The undisclosed investment is a blend of equity and quasi-equity.

Moroccan group Akwa Africa is set to acquire TotalEnergies‘ fuel distribution subsidiary in North West Africa’s Mauritania. No financial details were disclosed.

Madison Metals, an upstream mining and exploration company focused on sustainable uranium production in Namibia and Canada, has entered into a binding agreement to acquire a 90% direct interest in additional mining and exclusive prospective licences in Erongo uranium province.

TotalEnergies has completed the joint acquisition with ConocoPhillips of the 8.16% interest held by Hess in the Waha Concessions in Libya. Following the close of the transaction, TotalEnergies’ stake will increase to 20.41%

Stable Foods, the Kenyan agri-tech startup, has raised US$600,000 in funding from Acumen Resilient Agriculture Fund and Mercy Corps Ventures. The funds will be used to develop its climate-smart smallholder food production system.

Beekeeper Tech, the Tunisia-based agritech, has raised US$640,000 in a round led by 216 Capital Ventures. The startup creates and sells smart connected equipment for beekeepers. Funds will be used to accelerate deployment in new regions and expand its position in MENA.

Egypt’s Blnk, a fintech startup enabling instant consumer credit at point-of-sale, has raised US$23,7 million in equity ($12,5 million) and debt funding ($11,2 million) together with a $8,3 million securitised bond issuance underwritten by the National Bank of Egypt and Banque du Caire. The funds will be used to support further development of Blnk’s AI-powered lending infrastructure and the financing of its growing portfolio of customers. The equity raise was led by Emirates International Investment Company and venture capital firm Sawari Ventures with participation from angel investors.

BasiGo, an early-stage e-mobility start-up looking to revolutionise the public transportation sector by providing public transport bus owners with a cost-effective electric alternative to diesel, has raised US$6,6 million. The new funding round was led by Mobility54, Trucks VC and Novastar Ventures with participation from Moxxie Ventures, My Climate Journey, Susquehanna Foundation, Keiki Capital and OnCapital. Funds will be used to acquire new locally manufactured electric buses, charging infrastructure through the company’s Pay-As-You-Drive financing model.

DealMakers AFRICA is the Continent’s M&A publication
www.dealmakersafrica.com

Weekly corporate finance activity by SA exchange-listed companies

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Premier Group is set to list on the JSE by way of an Initial Public Offering. The group will list on the main board under the Food Products’ sector. The offer for the sale of shares held by Brait intends to raise gross proceeds of up to R3,7 billion. The proposed pricing range of R53.82 – R67.04 per share translates into a valuation of R6,9 billion to R8,6 billion – a 10%-28% discount to Brait’s latest valuation of Premier. Titan and Rand Merchant Bank have committed to underwrite R2,9 billion and R500 million respectively. The capital raised from this unbundling will assist in addressing Brait’s future liquidity requirements.

Mantengu Mining intends to raise R15 million by way of a fully underwritten renounceable rights offer. The company will offer 15,000,000,000 shares at 0.1 cent per rights offer share.

EOH has announced a proposed rights offer of R500 million and a specific issue for cash of R100 million to Lebashe Investment Group – EOH’s BEE shareholder. The net proceeds of the capital raise will be used to repay c.R563 million of its bridge facility while maintaining sufficient working capital in the short to medium terms.

Sun International has acquired 49,6 million Grand Parade Investments (GPI) securities in the open market for an undisclosed sum. The shares represent a 10.56% stake in the company. Last week GMB Liquidity Corporation made a mandatory offer to GPI minorities following an increase in its stake to over 35%. GPI holds stake in two of SA’s most profitable gaming assets.

The JSE has warned Fortress REIT that it is at risk of losing its REIT status if a compliance declaration is not submitted before month end.

A number of companies listed on one of South Africa’s Stock Exchanges have initiated share buyback programmes and each week update shareholders. They are:

Capital & Counties Properties has repurchased 684,539 shares for a total consideration of £773,726 in accordance with the authority granted by shareholders at its annual general meeting in June 2022.

Glencore this week repurchased 18,150,000 shares for a total consideration of £92,82 million. The share repurchases form part of the second phase of the Company’s existing buy-back programme which is expected to be completed by February 2023.

South32 has this week repurchased a further 1,882,677 shares at an aggregate cost of A$7,38 million.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period November 7 – 11, a further 5,290,317 Prosus shares were repurchased for an aggregate €271,83 million and a further 787,223 Naspers shares for a total consideration of R1,74 billion.

British American Tobacco repurchased a further 1,250,277 shares this week for a total of £40,64 million. Following the purchase of these shares, the company holds 217,273,604 of its shares in Treasury.

Six companies issued profit warnings this week: Purple Group, Telkom SA SOC, PPC, eMedia, WG Wearne and Afine Investments.

Six companies issued or withdrew cautionary notices. The companies were: African Equity Empowerment Investments, Nutritional Holdings, Trustco, Tongaat Hulett, PSV and Sebata Holdings.

DealMakers is SA’s M&A publication
www.dealmakerssouthafrica.com

Fifty shades of greylisting

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If Fifty Shades of Grey got your pulse racing, then keep your defibrillator on standby as you explore the various nuances of South Africa’s potential greylisting by the Financial Action Task Force (FATF). This is a ‘naughty list’ that we really have no desire to be on.

Who is the FATF?
South Africa is a member of the FATF, which is an inter-governmental, policy-making body that acts as a global money laundering, corruption and terrorist financing watchdog.

Why does SA risk greylisting?
In 2019, the FATF conducted a mutual evaluation (peer review) of SA’s Anti- Money Laundering and Combating of the Financing of Terrorism system. It published a report in October 2021 (FATF report), in which the country rated poorly and failed in 20 of the 40 FATF standards and in all 11 effectiveness measures.

What are the implications of being on the grey list?
The label would raise SA’s risk profile, causing greater scrutiny of finance and investment, ultimately increasing the cost of doing business and affecting the growth of the country.

What needs to be done to avert greylisting?
In order to satisfy the FATF, SA has to implement legislation or policies that address the deficiencies identified in the FATF report.
For instance:

• The General Laws (Anti Money Laundering & Combating Terrorism Financing) Amendment Bill (GLA Bill), which has recently been approved by Cabinet, attempts to address 14 of the 20 deficiencies identified by the FATF. The GLA Bill is an omnibus Bill that proposes amendments to the Financial Intelligence Centre Act, the Non-Profit Organisation Act, the Trust Property Control Act, the Companies Act and the Financial Sector Regulations Act; and

• The Protection of Constitutional Democracy against Terrorist & Related Activities Amendment Bill will address two deficiencies identified by the FATF report, with the remaining four to be dealt with by regulations. It is expected to be enacted by November 2022.

SA will have to ensure that these Bills are in effect by early January 2023. The more difficult part will be to demonstrate that the laws are effective. These issues relate, for instance, to the country having a national risk-assessment plan, how effective the authorities are in investigating and prosecuting the crimes, and whether the proceeds of illicit activity are confiscated.

What are the most radical changes to be introduced to the Companies Act?
The Companies Act enables a company’s issued securities to be held by and registered in the name of one person (nominee) for the beneficial interest of another person (owner), subject to the provisions of the company’s memorandum of incorporation.

The owner is entitled to the rights attached to the share, notwithstanding that the shares are registered in the nominee’s name. There are a number of reasons why an owner may not want the shares of a company to be registered in its name, and – although such reasons may not be sinister – it is imperative from the perspective of the FATF that the identity of such owner is easily attainable and accessible in order to avoid the abuse of company ownership for crimes and illicit purposes.

Some also argue the import of corporate transparency to protect the board of the company, the shareholders and the public for purposes of detecting insider trading; minority shareholders being able to identify a change in the controlling shareholder; and the board of directors and shareholders being in a position to predict a hostile takeover. This does, however, need to be carefully balanced with what is reasonable and practically enforceable.

The Companies Amendment Bill, 2021 (Companies Bill), which has been in the pipeline for several years, recognised the need for more transparent companies, and proposes, among other significant changes, extensive amendments to the disclosure requirements contained in the Companies Act.

Subsequent to the publication of the last draft of the Companies Bill, the GLA Bill was released for comment, which also proposes changes to the same provisions of the Companies Act as the Companies Bill, with the aim of creating transparent companies.

Whilst it is not yet clear which iteration of these amendments will ultimately come into force, what is apparent is that corporates will soon be faced with more onerous beneficial owner disclosure obligations. Disclosure obligations are likely to apply both to public and private companies, and apply up the ownership chain, well beyond what is currently required, to the natural persons ultimately behind the ownership. The same is true for beneficiaries behind trusts. Disclosures will be required in securities registers, recorded at the Companies and Intellectual Property Commission, and filed with annual returns, with that information to be available for inspection.

The proposed amendments by the GLA and the Companies Bill to the Companies Act have been hotly contested by corporates that foresee the obstacles in compliance, based on experience in other jurisdictions that have implemented other variations of similar laws. It has also been contested by the Johannesburg Stock Exchange, South Africa’s primary exchange (the JSE), which denounces the proposed beneficial- owner disclosure and reporting requirements as too onerous on publicly listed companies. This is because listed companies have significantly more shareholders than non-listed companies, which undergo frequent changes. The Treasury has rejected a plea by the JSE for listed companies to be entirely exempt from the requirement to register their beneficial owners. However, it undertook to refine the proposals to make them “reasonably implementable” by listed companies.

How long do we have?
SA had until the end of October 2022 to satisfy the FATF that it has addressed its concerns. The FATF will make its final decision in February 2023.

Should SA, notwithstanding its efforts, ultimately be greylisted, then the country will have to do further work to be removed from the list. In the best- case scenario, we can try emulating Mauritius, which was able to get off the greylist in less than two years.

A report commissioned by Business Leadership SA determined that there is an 85% chance that SA will be greylisted. Although there is hope that we can avert this altogether, extensive legislative changes are on their way. Best be prepared.

Ricci Hackner is a Knowledge Lawyer | Bowmans South Africa

DealMakers is SA’s M&A publication
www.dealmakerssouthafrica.com

Unlock the Stock: Equites Property Fund

Unlock the Stock is a platform designed to let retail investors experience life as a sell-side analyst. Corporate management teams give a presentation and then we open the floor to an interactive Q&A session, facilitated by the hosts.

Unlock the Stock is proudly brought to you by Kuda, a specialist insurance and forex services provider. The South African team from Lumi Global looks after the webinar technology for us.

In this edition of Unlock the Stock, Equites Property Fund joined us for the first time to talk about a business that has built a strong reputation in high quality warehouse and logistics properties. With a portfolio in South Africa and the UK, there’s a lot to learn from the management team about the interesting world of industrial property.

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